(L-R) Charles Scharf, CEO and President of Wells Fargo and Company; Brian Thomas Moynihan, Chairman and CEO of Bank of America; Jamie Dimon, Chairman and CEO of JPMorgan Chase; Jane Fraser, CEO of Citigroup; Ronald O’Hanley, CEO of State Street; Robin Vince, CEO of BNY Mellon; David Solomon, CEO of Goldman Sachs; and James Gorman, CEO of Morgan Stanley, testify during a Senate Banking Committee hearing at the Hart Senate Office Building on December 06, 2023 in Washington, DC.
Win Mcnamee | Getty Images
One of Wall Street’s favorite employee leverage tactics — non-compete agreements — is facing a major threat, and there could be far-reaching implications for how the financial industry does business.
The Federal Trade Commission is aiming to ban non-competes, claiming they create an unfair method of competition and thereby violate the Federal Trade Commission Act. It’s unclear what the final rule — expected in April — would look like, but based on a broad-based proposal floated last year, it would upend a major way Wall Street does business.
Not surprisingly, Wall Street is crying foul. “The near-categorical prohibition on non-compete clauses will hurt competition and the economy,” SIFMA, a trade organization for the securities industry, wrote in a comment letter — one of the nearly 27,000 comments the FTC received on its proposal. SIFMA’s board includes executives from most major financial firms including JPMorgan Chase, Morgan Stanley, Bank of America, Citigroup, and Goldman Sachs.
A national ban on non-competes would ripple across the entire economy, as can be judged by the number of major firms that hold board seats at an intellectual property trade group that submitted a comment letter arguing against the FTC approval, including Google, Apple, Pfizer, Exxon Mobil, General Electric, Procter & Gamble, General Mills and Nike. An analysis by the Economic Policy Institute in 2019 found that almost half of employers nationwide have some employees on non-competes. While difficult to provide a precise number, EPI’s survey work estimated between 27% to 46% of all private sector workers being subject to some form of a non-compete.
But it’s also clear that Wall Street firms are under particular attention for the practice. Industry interests were among the opponents to a New York bill, recently vetoed by Governor Kathy Hochul, that would have banned all non-compete agreements in the state. California, where many of the tech giants are based, already has strong legal provisions against the use of non-competes, and its existing worker protections were recently enhanced. But even in the largest state economy in the U.S., companies have found workarounds, and the EPI found that many employers still use non-competes that would likely be overturned by courts if challenged.
The FTC effort puts Wall Street in a precarious position that’s already been tested by Covid, said Laurie Chamberlin, head of LHH Recruitment Solutions for North America. With major Wall Street firms already having among the most unpopular back-to-work policies in the market, “Wall Street is already in a position where they are recognizing they don’t have all the hands they had before,” Chamberlin said.
Here’s how things could shape up for Wall Street if the FTC’s proposal is enacted:
Existing work precedents that could shape a final rule
This is anybody’s guess, but attendees at the American College of Emergency Physicians’ annual meeting recently got a taste of the aggressive posture being taken by FTC chair Lina Khan’s perspective when it comes to an outright ban. “I’ll be honest, the overwhelming number of comments are firmly in support of the FTC proposal to ban non-competes across the board. And so, we take that very seriously,” Fierce Healthcare reported Khan as saying in October.
It’s also possible the FTC could decide to tailor the rule more narrowly, similar to what states have done to restrict the use of non-competes, said David Fisher, a labor and employment partner at Davis+Gilbert.
Massachusetts and Oregon, for instance, have “garden leave” provisions. These require employers to compensate workers, post-employment, while a non-compete is in force. Washington, meanwhile, has limited the permissible duration of non-compete clauses to 18 months. Massachusetts and Oregon have a one-year limit.
“There are many ways they could craft this rule to recognize the value that non-compete agreements bring … while at the same time protecting employees subject to them and their ability to earn a living and protect their families,” Fisher said. “There is a middle ground there that this rule doesn’t seem to acknowledge as currently drafted.”
An FTC spokesperson declined to comment other than to say that the agency would likely take action on the proposal…
Read More: One of Wall Street’s favorite employee control tactics is under attack